What’s More American Than Inheriting a Fortune?

By Bryce Covert

March 28, 2016

Donald J. Trump, as he is happy to tell anyone who will listen for five seconds, is wealthy. Although he has yet to provide the tax returns that would tell us exactly how much he’s worth, he reminds voters again and again: “I’m really rich.” He said as much when he announced his campaign.

Yet unlike his father, Fred C. Trump, Donald is no self-made Horatio Alger character, who rose from modest beginnings to wealth through grit and hard work. Mr. Trump has already told us about the “small” $1 million loan he got from his father, though that was most likely the least of the familial support he received.

Those details don’t seem to matter to his supporters, who like his populist tone and his promise to make America great again. His voters — and Democratic voters too — are angry about the gulf between haves and have-nots, and their rage has a starring role in the election. Yet the estate tax, one of the most effective ways to address inequality, has gotten little mention from any candidate. Even though the American dream is pulling yourself up by your bootstraps, we’ve made ample room in it for people whose boots are handed down.

Americans are pretty worried about income inequality, which now means that the richest 10 percent of the country takes home about half of all income. More than three-quarters of the public says inequality is a big problem, including a sizable portion of Republicans. Wealth inequality is even more troubling. The richest 0.1 percent, 160,000 families, holds 22 percent of the country’s wealth, an increase from 7 percent in the late 1970s.

The public is in favor of action to reverse these trends. Americans are generally comfortable with making the rich pay more in taxes, and they want the government to take action to shrink the gap between the rich and everyone else, although Republicans are a bit less on board.

But the estate tax is, bizarrely, different. The polls say most Americans want to reduce or eliminate it, even when pollsters clearly explain exactly what it does and whom it affects — under current law, just 0.2 percent of estates. Perhaps we all believe that we will one day be rich and want the right to give our wealth to our children without paying taxes.

Mr. Trump should know well how the estate tax used to work. While the terms aren’t public, his father’s estate at the time of his death in 1999 was worth $100 million to $300 million, which was largely divvied up between Donald and his siblings. In 1999, the estate tax was 55 percent on anything above $650,000.

The United States has nearly always had some form of tax on inheritances, in part to fund the government but mostly to stave off extreme differences between income levels, avoiding an aristocracy in favor of the ideal of a meritocracy. Its current form came into existence, according to historians, when the country feared the creation of a plutocracy and calcified social classes after the extreme concentration of wealth in a handful of companies and individuals at the beginning of the 20th century.

The tax, also known as the “death tax,” thanks in part to Republican messaging, is one of the government’s main tools to ensure that the already rich don’t simply pass on their empires without paying dues. Economists have found that increasing it would reduce the concentration of wealth in a small number of families and also give people born into an ultrawealthy family less of an advantage over everyone else.

Wealth inequality began to climb in the 1970s, right around when Congress passed a change that got rid of the policy that made it cheaper for a wealthy person to give away his fortune than to simply pass it to heirs. The tax is also what the Center on Budget and Policy Priorities, a left-leaning economic think tank, calls “the most progressive part of the U.S. tax code” because it draws from a wealthy few to fund important programs for the rest of us.

It may not be surprising that all three Republicans still in the presidential race havepromised to abolish the estate tax. It’s become mainstream posturing. Mitt Romney pledged to do the same in his presidential campaign, and the last Republican president actually succeeded in getting rid of it for a time, as the Bush tax cuts phased it out in 2010 before it was phased back in shortly thereafter.

More surprising is the feeble treatment the tax gets on the other side of the aisle. Bernie Sanders, whose campaign has harnessed rage at the concentration of money in the hands of the few and has made sweeping policy promises, pledges on his website to “create a progressive estate tax.” But he would bring the tax only back to where it was in 2009, right before it was phased out altogether and far from where it was before President Bush got his hands on it. Hillary Clinton has proposed doing the exact same thing. No candidate would take the tax back to where it was when it had a real impact on wealth concentration. And voters certainly aren’t demanding that they do.

The tax wasn’t always anathema to today’s brand of critics. Andrew Carnegie, the world’s richest man in his lifetime, testified in favor of its enactment, calling it the “wisest” form of taxation.

Carnegie also starkly criticized the accumulation of vast wealth without spending it and urged all of his rich colleagues to expend their fortunes on philanthropy. He called this method “the true antidote for the temporary unequal distribution of wealth, the reconciliation of the rich and the poor — a reign of harmony.” He gave away nearly all of his money while he was alive. Today’s new class of millionaires and billionaires seem to be heeding this call, with many publicly pledging to give away the majority of their wealth, but it’s a poor structure for making sure that accumulated wealth is transformed into public goods.

Fred Trump built his own empire, starting a construction business with his mother at the age of 15 and eventually passing it on to his children. Where is the politician willing to channel rage at the wealthy into taxes on the country’s Donald Trumps — taxes that might give more people the chance to turn themselves into the next Fred?

Bryce Covert is the economic policy editor at ThinkProgress and a contributor to The Nation.